Case: 15-51045 Document: 00513661656 Page: 1 Date Filed: 09/01/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-51045 FILED
September 1, 2016
Lyle W. Cayce
In the Matter of: JERRY W. SCARBROUGH, Clerk
Debtor
------------------------------------------------------
JERRY W. SCARBROUGH,
Appellant
v.
HELEN PURSER; JOANN M. PURSER; SUE E. PURSER; GARY W.
PURSER, JR.; ELIZABETH TIPTON,
Appellees
Appeal from the United States District Court
for the Western District of Texas
Before STEWART, Chief Judge, and CLEMENT and HAYNES, Circuit
Judges.
Carl E. Stewart, Chief Judge:
Debtor-Appellant Jerry W. Scarbrough (“Scarbrough”) appeals the
district court’s order affirming a bankruptcy court judgment that declared
nondischargeable a Texas state court judgment against him. This case
involves several familial disputes stemming from an employment lawsuit, an
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No. 15-51045
alleged extramarital affair, the death of the family patriarch, and secret
recordings. We AFFIRM.
I.
Beginning in 2010, Scarbrough represented Melissa Deaton (“Deaton”)
in a Texas state court proceeding brought by a third party against Plaintiffs-
Appellees Helen Purser, JoAnn Purser, Sue Purser, Gary Purser, Jr. and
Elizabeth Tipton (collectively, the “Appellees”). During the course of this
representation, Appellees joined Scarbrough as a third-party defendant with
Deaton and another party, Denise Steele (“Steele”). Appellees alleged that
Deaton and Steele were attempting to secure financial gain from Gary Purser
as his health declined. During trial, Appellees requested all discoverable
evidence or known witness statements relating to the state court litigation.
Scarbrough prepared responses to Appellees initial discovery requests, stating
that Deaton did not possess any recorded statements involving the parties in
the lawsuit. Months later, however, Deaton provided Scarbrough with “Secret
Recordings” that Scarbrough had duplicated by Shawn Richeson (“Richeson”).
Scarbrough failed to disclose the “Secret Recordings” to the court or Appellees
but instead gave the recordings back to Deaton. The recordings contained
information alleging that Deaton and Steele sought to take advantage of Gary
Purser financially. Appellees had not become aware of the Secret Recordings
and had not retained possession of them until Richeson produced the
recordings to a friend of the Purser family. The state court sanctioned
Scarbrough for his intentional withholding of the recordings among other
conduct. Scarbrough’s conduct is alleged as follows.
Between 2010 and 2011, Scarbrough conspired with Deaton to file a
police report alleging that JoAnn Purser called Deaton and threatened to kill
her; Scarbrough filed a motion to appoint a guardian ad litem for Gary Purser;
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and reported to the Texas Department of Adult Protective Services that
Appellees were committing elder abuse against Gary Purser. Following Gary
Purser’s death in 2011, Scarbrough attempted to obtain an autopsy report and
reported to the funeral home, local justices of the peace, two local police
departments and the Texas Rangers that Appellees likely killed Gary Purser
by overdosing him on prescription drugs. Also in 2011, Scarbrough uploaded
a video on YouTube of multiple altercations that occurred amongst Appellees,
Deaton, and other nonparties to this suit where profanity and physical
altercations transpired. Scarbrough superimposed text across the video
images specifically implicating JoAnn Purser, who was then running for a
position with the Killeen school board. The text included the phrases “VOTED
OUT” and “JoAnn Purser, running for Killeen school board.”
Appellees obtained several orders in Texas state court against
Scarbrough for fraud, civil conspiracy, and defamation. Scarbrough filed for
Chapter 7 Bankruptcy in June 2012. On September 10, 2012, while the
underlying suit was ongoing, Appellees brought an adversary proceeding in
bankruptcy court seeking a nondischargeability determination against
Scarbrough for multiple debts stemming from the state court judgment under
11 U.S.C. 523(a)(2), (4) and (6). Specifically, Appellees sought
nondischargeability for, inter alia, debts (1) for money and property obtained
by false pretenses, a false representation, or actual fraud and (2) due to
Scarbrough causing willful and malicious injury to Appellees. Appellees filed
an Amended Complaint on November 19, 2012. Scarbrough filed a motion to
dismiss Appellees’ Amended Complaint on November 21, 2012, for failure to
state a claim.
After granting partial summary judgment and conducting a nine-day
trial on the merits, the bankruptcy court concluded that (1) the judgments
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against Scarbrough for defamation and for fraud were each nondischargeable
under the willful and malicious injury discharge exception in § 523(a)(6); (2)
the judgment against Scarbrough for fraud due to Scarbrough’s failure to
disclose, and fraud by misrepresentation, was nondischargeable under the
“false pretenses, false representation, or actual fraud” discharge exception in
§ 523(a)(2)(A); and (3) Scarbrough’s privilege and First Amendment assertions
as affirmative defenses were collaterally estopped, as they were “actually
litigated” in state court. Scarbrough appealed the bankruptcy court decision.
The district court affirmed and Scarbrough now appeals to this Court.
II.
Scarbrough does not argue that the bankruptcy court misunderstood or
misapplied governing bankruptcy law, but that the court erred in granting
summary judgment and clearly erred in several of its factual findings. We
review the decision of the district court by applying the same standard to the
bankruptcy court’s findings of fact and conclusions of law that the district court
did, reviewing findings of fact for clear error and conclusions of law de novo.
See In re Acosta, 406 F.3d 367, 372 (5th Cir. 2005); In re Gamble, 143 F.3d 223,
225 (5th Cir. 1998). A finding of fact is clearly erroneous only if “on the entire
evidence, the court is left with the definite and firm conviction that a mistake
has been committed.” In re Dennis, 330 F.3d 696, 701 (5th Cir. 2003). We
review a partial grant of summary judgment de novo and apply the same
standards used by the district court. In re Criswell, 102 F.3d 1411, 1414 (5th
Cir. 1997).
III.
A.
Scarbrough first argues that Appellees’ late-filed Amended Complaint
addressing sanction orders was time-barred. A creditor seeking to have a debt
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deemed nondischargeable must assert the claim in a timely manner. See In re
Dunlap, 217 F.3d 311, 314 (5th Cir. 2000); see also In re Meyer, 120 F.3d 66, 68
(7th Cir. 1997). The deadline for filing a dischargeability complaint is
inflexible. Id. (stating that Bankruptcy Rule 4007(c) imposes a firm 60-day
deadline (after the first creditors’ meeting) for creditors to request a
nondischargeability determination for debts under §§ 532(a)(2) and (a)(6)).
Notwithstanding, a party’s amended complaint may determine
dischargeability if “the amendment asserts a claim or defense that arose out of
the conduct, transaction, or occurrence set out . . . in the original pleading.”
Fed. R. Civ. P. 15(c)(1); Fed. R. Bank. P. 7015.
Scarbrough complains that the bankruptcy court erred when it
permitted Appellees to file an amended complaint after the expiration of the
60-day filing period set forth in Bankruptcy Rule 4007(c). Scarbrough argues
that Appellees’ original complaint did not assert claims for nondischargeability
of sanction debts as specified in the Amended Complaint, and that the
Amended Complaint did not relate back to the original complaint. We
disagree.
The relation back doctrine is critical here because it determines whether
Appellees’ Amended Complaint must be dismissed as futile. See Baker v.
Carter, No. 4:12-CV-478, 2013 WL 1196106, at *7 (E.D. Tex. Mar. 22, 2013). If
so, Appellees have no claim for nondischargeability of the sanction debt. We
construe Appellees’ original complaint to assert that Debtor “alone or in concert
with others, obtained monies through false pretenses, a false representation or
actual fraud; committed fraud and defalcation while acting in a fiduciary
capacity, and committed a willful and malicious injury.” Appellees attached
and incorporated by reference their state court pleading. While Appellees’
initial complaint did not mention the sanctions orders, the conduct that
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Appellees identify in the Amended Complaint directly emanates from the
conduct for which the court sanctioned Scarbrough and from the conduct
specified in Appellees state court pleading: (1) Scarbrough engaged in conduct
that was defamation per se, including accusing Appellees of murder; (2)
Scarbrough failed to disclose recordings that proved Appellees’ allegations; and
(3) Scarbrough made numerous false representations to the court and third
parties pertaining to Appellees.
The Amended Complaint did not allege new grounds for finding
Scarbrough’s debt nondischargeable, but merely added specific facts consistent
with the nondischargeability claim advanced in their original complaint. See
In re Schwager, 121 F.3d 177, 186 (5th Cir. 1997) (finding no abuse of discretion
where an amended complaint made more specific that which had already been
alleged because the amendments related back to the original complaint); see
also Baker, 2013 WL 1196106, at *8 (“This standard is measured not by ‘the
caption given a particular cause of action, but . . . the underlying facts upon
which the cause of action is based.’”) (quoting Cardiovascular Surgery of
Alexandria, LLC v. Kerry, No. CIV.A. 10-1003, 2011 WL 672244, at *3 (W.D.
La. Feb. 17, 2011)). The bankruptcy court held, and we agree, that Appellees
raised the issue of sanctions based on allegations of fraud and causing willful
and malicious injury. Scarbrough had ample notice of these claims because
Appellees pleaded §§ 523(a)(2) and (a)(6) as a basis for nondischargeability.
Accordingly, Scarbrough’s sanctionable state court conduct relates back to the
conduct alleged in the original complaint.
B.
Scarbrough next argues that the district court erred in granting partial
summary judgment on the issue of sanction orders based on collateral estoppel.
This argument lacks merit. The sanction debt in the judgment, which
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incorporates the sanction orders, meets the requirements of
nondischargeability under § 523(a)(6) for committing willful and malicious
injury.
Under the Bankruptcy Code, a debtor may not be discharged from any
debt “for willful and malicious injury by the debtor to another entity or to the
property of another entity.” 11 U.S.C. § 523(a)(6). Here, the state court signed
sanction orders for conduct ranging from “intentional concealment and
deception” regarding the existence of audio recordings and willful violation of
various court orders to Scarbrough’s willful filing of frivolous motions to harass
Appellees. We find this conduct sufficient to have met § 523(a)(6)’s standard.
See In re Keaty, 397 F.3d 264, 273 (5th Cir. 2005); see also, In re Dahlstrom,
129 B.R. 240, 246 (Bankr. D. Utah 1991) (“[A]ll debts that arise from willful
and malicious acts are nondischargeable.”). The state court likewise held
Scarbrough in civil and criminal contempt for engaging in discovery abuse that
was “active[ly] decept[ive].” In re Williams, 337 F.3d 504, 512 (5th Cir. 2003)
(“Failure to obey a court order constitutes willful and malicious conduct. . . .”).
Scarbrough contends that, even if Appellees show that he intentionally
committed an act that harmed Appellees, Appellees fail to establish that this
harm was intended. See Kawaauhau v. Geiger, 523 U.S. 57, 61–62 (1998). The
willful and malicious injury that occurred here is evidenced by both (1) an
objective substantial certainty of harm and (2) a subjective motive to cause
harm. In re Davenport, 353 B.R. 150, 202 (Bankr. S.D. Tex. 2006). The record
reflects that Scarbrough intentionally concealed evidence when failing to
disclose the Secret Recordings to the court after multiple discovery requests
were made, willfully violated various court orders, and filed frivolous motions
before the court; Scarbrough’s “scorched earth” strategy impacted the litigation
strategy of Appellees. The record reflects clear and specific findings as to
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Scarbrough’s state of mind. We find no error in the lower court’s
determination.
IV.
A.
Scarbrough next contends that the bankruptcy court erred in granting
partial summary judgment on Appellees’ claims under § 523(a)(2) for fraud.
Again, we disagree.
First, Scarbrough invokes error in the court’s collateral estoppel finding,
which bars re-litigation of any ultimate issue of fact actually litigated and
essential to the judgment. See In re Gober, 100 F.3d 1195, 1201 (5th Cir. 1996).
Prior to the U.S. Supreme Court’s ruling in Husky Int’l Elecs., Inc. v. Ritz, 136
S. Ct. 1581 (2016), this Circuit required that a finding of fraud under §
523(a)(2) show: (1) that the debtor made a representation; (2) that the debtor
knew the representation was false; (3) that the representation was made with
the intent to deceive the creditor; (4) that the creditor actually and justifiably
relied on the representation; and (5) that the creditor sustained a loss as a
proximate result of its reliance. 1 In re Acosta, 406 F.3d at 372. The bankruptcy
court granted partial summary judgment for Appellees on the fraud elements
that the state court jury found and thereafter conducted a bench trial
rendering judgment on the issues the state court jury had not considered—
fraudulent intent and justifiable reliance. Scarbrough asserts that once the
bankruptcy court concluded that the two factual issues not considered by the
jury had to be tried, all factual issues related to the fraud claim must be re-
1 As this Court recognized in In re Ritz, No. 14-20526, 2016 WL 4253552, at *3 n.3
(5th Cir. Aug. 10, 2016), “[t]o the extent that In re Acosta, . . . and other prior Fifth Circuit
cases required that a debtor make a representation in order for a debt to be nondischargeable
under § 523(a)(2)(A), those cases are effectively overruled by the Supreme Court’s decision in
[Husky Int’l Elecs., Inc. v. Ritz, 136 S. Ct. 1581, 1586 (2016)].”
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tried. Not so. The bankruptcy court explicitly did not re-litigate the essential
elements of the fraud claim found by the jury. See In re Gober, 100 F.3d at
1201. It solely addressed issues not yet decided. See In re Schwager, 121 F.3d
at 184. Scarbrough provides no legal support for an argument to the contrary.
Next, Scarbrough contends that the jury’s findings do not meet
§ 523(a)’s requirements because the jury was not required to find “that anyone
received a benefit.” This argument also fails. A creditor is not required to show
that the debtor received a direct benefit as a prerequisite for a determination
that a fraud debt is nondischargeable. See In re M.M. Winkler Assocs., 239
F.3d 746, 748, 750–52 (5th Cir. 2001).
B.
Scarbrough next argues that the bankruptcy court erred in finding the
fraud judgment to be nondischargeable under §§ 523(a)(6) for willful and
malicious conduct, and (a)(2) for fraud by false representations. We do not
rehash Scarbrough’s willful and malicious conduct, as the same acts were
applicable to Scarbrough’s nondischargeability finding for the state court
sanctions. However, we add that by making groundless, fraudulent, and
harassing claims in the state court action in an attempt to demand three
million dollars payment, Scarbrough, along with his co-defendants in the state
court proceedings, engaged in willful and malicious conduct. See In re
Shcolnik, 670 F.3d 624, 626, 629 (5th Cir. 2012) (concluding on summary
judgment, but without deciding whether debtor’s actions fell under § 523(a)(6),
that the attempt to obtain one million dollars by threatening exposure of
alleged illegal activity intended to cause injury through harassment and
baseless litigation); In re Bain, 436 B.R. 918, 924 (Bankr. S.D. Tex. 2010).
We also conclude that Appellees met their burden under § 523(a)(2)(A).
Appellees’ fraud claim is rooted in Scarbrough’s intentional failure to disclose
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the Secret Recordings and falsehoods disclosed about Appellees. Appellees
justifiably relied on Scarbrough’s conduct in the underlying lawsuit, which
resulted in Scarbrough’s co-conspirators obtaining money and jewelry through
the fraud. In re Acosta, 406 F.3d at 372 (“[A] debt will not be discharged in
bankruptcy if it is ‘for money, property, [or] services,’ . . . [if] it was ‘obtained
by false pretenses, a false representation, or actual fraud.’” (quoting 11 U.S.C.
§ 523(a)(2)(A))).
Scarbrough contends that because he did not receive money directly from
Appellees, prong five of the fraud inquiry has not been met. “We . . . reject
debtor’s implication that a debt is nondischargeable under section 523(a)(2)(A)
only when the creditor proves that the debtor directly and personally received
every dollar lost by the creditor.” In re Bain, 436 B.R. at 922 (quoting In re
Brady, 101 F.3d 1165, 1172 (6th Cir.1996)). A debt may be nondischargeable
under § 523(a)(2)(A) even if the debtor obtained only an indirect benefit as a
result of the fraud. In re M.M. Winkler Assocs., 239 F.3d at 750 (“[E]ven an
indirect benefit is sufficient.”). Helen Purser testified that both money and
jewelry were given to third parties as a result of Scarbrough and his co-
defendants’ conduct, and the bankruptcy court gave great weight to Helen
Purser’s testimony. In re Acosta, 406 F.3d at 372 (“When the bankruptcy court
bases its findings on credibility determinations, this Court gives ‘due regard’
to the opportunity of the bankruptcy court to judge the credibility of the
witnesses firsthand.” (quoting In re Webb, 954 F.2d 1102, 1104 (5th Cir.
1992))). The bankruptcy court observed Helen Purser and other witnesses, and
is “in a far superior position to gauge [Scarbrough’s] credibility than this Court
is in by merely reading the transcripts.” Id. Finding no clear error in the
court’s ruling and that the bankruptcy court’s account of the evidence is
plausible in light of the record viewed as a whole, we will not reverse.
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V.
Scarbrough next argues that the bankruptcy court erred in finding the
defamation judgment nondischargeable under § 523(a)(6) for willful and
malicious conduct. The bankruptcy court affirmed the state court’s finding
that Scarbrough engaged in defamation and defamation per se. “Defamation
is a false statement about a person, published to a third party, without legal
excuse, which damages the person’s reputation.” Fiber Sys. Int’l Inc. v. Roehrs,
470 F.3d 1150, 1161 (5th Cir. 2006) (citation omitted). In cases of defamation
per se, the statements at issue are so obviously hurtful that they require no
proof of injury to be actionable. Id.
Several incidents lead this court to affirm the lower court’s judgment.
Among them was Scarbrough’s (1) false reporting to Adult Protective Services;
(2) posting a video of a personal family conflict on YouTube in an attempt to
hinder JoAnn Purser’s bid for a school board seat; and (3) conspiring to make
false statements and reports that JoAnn Purser threatened to kill others and
that Appellees consumed illegal drugs. See, e.g., French v. French, 385 S.W.3d
61, 72 (Tex. App.—Waco 2012, pet. denied) (“A statement that falsely charges
a person with the commission of a crime is defamatory per se.” (citing
Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 374 (Tex. 1984))). We
find no error in the lower court’s ruling.
VI.
Scarbrough contends that the bankruptcy court’s application of collateral
estoppel to the jury’s damages findings for both fraud and defamation were
improper. He argues that because Appellees’ claims for fraud and defamation
were based on multiple acts committed by Scarbrough, the bankruptcy court’s
finding that collateral estoppel applies to the jury’s determination of damages
is in error. We disagree. Scarbrough highlights that Appellees alleged that
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he engaged in fraud by, inter alia, (1) making false and embarrassing demands
and allegations related to the state court action and (2) making harassing
claims in the state court action in order to coerce a multi-million dollar
settlement. Appellees’ defamation claim stemmed from Scarbrough, inter alia,
(1) conspiring to make false statements that JoAnn Purser was threatening to
kill Deaton; (2) false statements and reports that Appellees consumed illegal
drugs; and (3) posting slanderous videos about JoAnn Purser online. We have
held that “[where] the judgment of the court of first instance was based on a
determination of two issues, either of which standing independently would be
sufficient to support the result, and the appellate court upholds both of these
determinations as sufficient, and accordingly affirms the judgment, the
judgment is conclusive as to both determinations.” In re Horton, 85 F.3d 625,
at *4 (5th Cir. 1996). Here, the jury’s findings of damages for defamation and
fraud, each “independently sufficient to support the judgment,” are binding
and “preclude [re-litigation] in a subsequent case which involves only one of
the independently sufficient grounds.” Id. We find no error with the lower
court’s ruling.
VII.
Finally, Scarbrough argues that the court erred in finding his First
Amendment and privilege affirmative defenses were precluded by collateral
estoppel. We reiterate the bankruptcy court’s finding. Under Texas law,
“collateral estoppel bars re-litigation of any ultimate issue of fact actually
litigated and essential to the judgment in a prior suit.” In re Schwager, 121
F.3d at 181 (quotations omitted). To be “actually litigated,” the issue must
have been “raised, contested by the parties, submitted for determination by the
court, and determined.” Keaty, 397 F.3d at 272. Each of the aforementioned
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issues were raised and decided below. Scarbrough’s claims are dismissed as
meritless.
VIII.
For the reasons stated herein, we AFFIRM.
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